notes 8 great depression + new deal

Question 1

causes of great depression

Answer 1

related to crash in october 1929 but not directly caused by it

• debts and loans from end of ww1 (germany was the first to fall into great depression), also caused everyone’s debt to be tied together (domino effect from globalization)
• agricultural over-supply dropped prices (largest economic factor), farmers trying to find jobs in the city, unemployment rises
• supply > demand = further unemployment
• stock crashes destabilized banks (they had invested people’s money into stocks to profit but lost that money instead)
  ↪credit crunch - when companies can’t get loans (which many function off of)
• industrial production + employment dropped a lot

Question 2

herbert hoover

Answer 2

US president 1929-1933 (during great depression)

• laissez faire approach to great depression, no gov assistance
• didn’t believe in progressve or socialist approaches
• encourages charities instead of gov intervention
  ↪idea that people will voluntarily participate in redistribution of wealth (individual-led economic equality)
  ↪problem: charities wouldn’t even have the resources to do this if they got enough money (which they probably didn’t)
• reliance on local govs to provide
• charities + local govs became over-extended and couldn’t meet demands

⬇️

• gov creates plans to provide jobs (ex. hoover dam)
• but increase taxes to pay for this
• economy sank further
• homeless caps were created in public spaces called “hoovervilles” to demonstrate his failure

Question 3

deflation during great depression

Answer 3

1929-1933

opposite of inflation, worse for economy than inflation
prices drop ~33%
↪when prices drop people stop spending to see how low they will go
hoarding money + lowering spending
not trusting banks at all anymore
⬇️demand, ⬇️employment, ⬇️prices….

also see an increase in civil violence

Question 4

FDR

Answer 4

US president 1933-1945

rethinking economic system after great depression
↪NEW DEAL to “save capitalism from itself”

idea to boost spending and drive up demand by giving consumers more money

3 R’s:
relief
recovery
reform

new deal
- close banks then recapitalize them to restore confidence
↪also create insurance so if the bank is struggling you don’t lose money
- alphabet agencies to fix deficiencies in economy
- executive branch strengthened a lot

Question 5

demand side economics

Answer 5

aka keynesianism aka new deal economics

recession/contraction:
gov spending ⬆️, taxes ⬇️

expansion/boom:
gov spending ⬇️, taxes ⬆️ to prepare for another recession

based on the idea that people make desperate decisions in both good and bad times that may not be best in the long run

Question 6

John Maynard Keynes

Answer 6

created demand-side economics (/keynesianism/keynesian economics/new deal economics)

idea that traditional laissez faire is insufficient because it says that prices will eventually go down, but what if that takes 30 years?

gov to play strong role in balancing economy

–> problem: people only agree with this policy during bad times, people love raising gov spending but hate raising taxes

Question 7

fiscal policy + role in keynesianism

Answer 7

the collection and spending of tax (government)

expansion - raise tax, lower spending
contraction - lower tax, raise spending
⬇️
slow or speed up economy

Question 8

monetary policy + role in keynesianism

Answer 8

interest rates on loans (banks)

expansion - raise interest rates
contraction - lower interest rates
⬇️
decrease or increase amount of loans taken out/paid off